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Exam 28: Income Taxation of Trusts and Estates

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Question 81

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In computing the Federal taxable income of a trust, a modified approach is used.

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Question 82

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The trust instrument indicates whether cost recovery is to fiduciary accounting income, thereby reducing the amount of the distribution to the income beneficiary.

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Question 83

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The Federal income taxation of a trust or estate has been described as a "modified pass­through" system. Compare fiduciary tax rules to those that apply to LLCs and to individuals.

Distributable net income (DNI) is the (maximum, minimum) amount that can be included in the beneficiaries' gross incomes from the fiduciary for the year.

Generally, capital gains are allocated to fiduciary income, because they arise from current-year transactions as directed by the trustee.

Estates and trusts can claim Federal income tax deductions for costs incurred in maintaining investments in U.S. state and local bonds.

The Suarez Trust generated distributable net income (DNI) this year of $150,000, two-thirds of which was portfolio income, and the balance of which was exempt interest. Under the terms of the trust, Clara Suarez is to receive an annual income distribution of $30,000. At the discretion of the trustee, additional distributions can be made to Clara or to Clark Suarez III. This year, the trustee's distributions to Clara totaled $60,000. Clark received $90,000. How much of the trust's DNI is assigned to Clara?

A complex trust automatically is exempt from the Federal AMT.

For each of the following independent statements, choose the best answer. -For a calendar-year entity, the Form 1041 has an unextended due date of April 15.

The first step in computing an estate's taxable income is the determination of its fiduciary accounting income for the year.

Income beneficiary Turk received $30,000 from the Urgent Trust. Trust accounting income for the year was $100,000. The trust generated $20,000 in cost recovery deductions. How much can Turk deduct with respect to the cost recovery deductions that Urgent generated?

A Form 1041 must be filed by a trust that has $ or more gross income for the tax year.

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase. -A trust that can accumulate, rather than distribute, its accounting income.

"First­tier distributions" allowed by the will or trust document are made at the discretion of the executor or trustee.

Three weeks after Abed died, his brother Tony properly received Abed's last paycheck from his employer. The gross amount of the check was $4,000, and a $300 deduction for state income taxes was subtracted in computing the net amount of the payment. Which of the following statements is true?

Generally, an estate's taxable income is computed in a manner similar to that used for a(n) ____________________.

During the current year, the Santo Trust received $30,000 of taxable interest income, paid trustee's commissions of $3,000, and had no other income or expenses. The Santo trust instrument requires that $20,000 be paid annually to Marilyn, and $40,000 be paid annually to Domingo. How much gross income must Marilyn and Domingo recognize?

In the year in which an estate terminates, its beneficiaries receive and can use as their own any unexpired NOL carryforwards, proportionate to the value of the corpus assets that they received.

Trusts can select any Federal income tax year-end.

For each of the following independent statements, choose the best answer. -The entity can be operated under the separate share rule.